icon Search

How to Assume a Mortgage from a Family Member
HomeLight
Real Estate
11 months ago
Img

In today’s high-interest mortgage landscape, the idea of assuming a mortgage from a family member can be an appealing path to home ownership. But what does this process actually entail?

This guide breaks down what it means to step into a family member’s mortgage shoes and purchase their home. But navigating this course can be tricky, especially when family relationships and emotions are involved.

We’ll explore what loans are assumable, the pros and cons, and the financial, legal, and tax considerations to help you make an informed decision. Whether it’s keeping a beloved home within the family or securing a home with a lower interest rate, here’s how to assume a mortgage from a family member.

Partner With a Top Agent Familiar With Assumable Mortgages

An experienced agent can help minimize challenges and coordinate a home sale between family members. HomeLight can connect you to a top agent with experience in family real estate transactions.

Get Started

What does it mean to assume a mortgage?

Assuming a mortgage may sound complex, but for the context of this post, it’s essentially taking over your family member’s existing mortgage — the remaining loan payments, terms, conditions, and interest rate. This means you bypass starting a new loan, often avoiding the higher interest rates that can come with it.

“If you can assume a mortgage, this might be the most beneficial for you because you can try to obtain the lower interest rate and get lower costs,” says Eric Broesamle, a top Michigan real estate agent who has been helping families buy homes for more than 22 years.

For many, this option is like a financial shortcut in the journey of homebuying. It’s particularly attractive if your family member has locked in a lower interest rate compared to current market rates.

This transfer of responsibility from one family member to another can be a practical solution, especially when trying to keep a home within the family or seeking affordability in a challenging market.

Can I assume a mortgage from a family member?

When considering assuming a mortgage from a family member, it’s important to understand that not all mortgages are assumable. The ability to assume a mortgage depends largely on the type of loan and the lender’s policies. Here’s a breakdown of the common types of loans and their assumability:

  • FHA loans: These loans, backed by the Federal Housing Administration (FHA), are typically assumable. They’re a popular choice for assumable mortgages due to their relatively lower down payment requirements and flexible eligibility criteria.
  • VA loans: Assumable by qualified borrowers, VA loans are backed by the Department of Veterans Affairs. If you’re assuming a VA loan, you don’t need to be a veteran, but the lender’s approval is crucial, and specific criteria must be met.
  • USDA loans: Similar to FHA and VA loans, USDA loans — aimed at rural homebuyers — are generally assumable. However, approval from the USDA is required, and you must meet their eligibility criteria.
  • Conventional loans: These are less likely to be assumable. Most conventional loans have a “due on sale” clause that requires the loan to be paid in full if the property is transferred. However, there are exceptions, so it’s worth checking with the lender.
  • Adjustable-rate mortgages (ARMs): The assumability of ARMs varies. Some may allow for assumption, but it’s dependent on the lender and the specific terms of the loan. In cases where an ARM loan has been deferred or modified to help the borrower avoid default, the loan is likely not eligible to be assumed.

If you’re looking to assume a family member’s mortgage, your first step should be to check with the lender to confirm if the loan is assumable. Additionally, assuming a mortgage also requires you to qualify for the loan just like any other homebuyer.

“That’s what’s important about speaking with the lender,” Broesamle advises his clients who are looking to assume a mortgage. “Once you talk to the lender, and we verify where your credit score is and what your approval rate is, then we can dive in to see if the loan is assumable.”

As with any real estate loan, the lender will assess your creditworthiness, income, and other financial factors to ensure you can handle the mortgage payments. Remember, assuming a mortgage is not just about taking over the payments; it’s about stepping into a binding financial agreement.


add

More From Life Style